Total demand for credit by the non-financial domestic sectors for the December quarter 2005 was $67.9b, an increase of $11.2b on the revised previous quarter estimate. Increased raisings by private non-financial corporations (up $36.1b) and borrowing by households (up $27.4b) were the main contributors to the rise.

NON-FINANCIAL CORPORATIONS

Private non-financial corporations raised a net $36.1b, with share raisings of $17.3b and loans of $12.0b.

National public non-financial corporations raised $0.6b and state and local public non-financial corporations raised a net $2.9b during the quarter.

GENERAL GOVERNMENT

National general government raised a net $1.7b. State and local general government repaid a net $0.8b.

HOUSEHOLDS

Households raised a net $27.4b during the December quarter 2005, up $3.4b from the $24.0b raised during the September quarter 2005. Households borrowed $24.1b from banks (of which $14.4b was for owner-occupied housing and $5.3b for investment housing) up from $16.2b in the previous quarter.

NOTES

FORTHCOMING ISSUES

ISSUE (QUARTER)

Release Date

March 2006

29 June 2006

June 2006

29 September 2006

CHANGES TO THIS ISSUE

There are no changes in this issue.

SIGNIFICANT EVENTS

There were no privatisations or other significant structural changes impacting the aggregates.

REVISIONS IN THIS ISSUE

The financial asset and liability data incorporate the results of quality assurance work undertaken with providers, as well as other revisions back to the March quarter 2004. The ABS has completed a review of the methodology used to compile estimates for pension funds, which resulted in revisions to series in this publication. See Managed Funds, Australia (cat. no. 5655.0) December Quarter 2005 for more information. In addition, estimates of the financial claims between households, life insurance companies and pension funds have been revised back to the March quarter 2004.

INQUIRIES

For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Derick Cullen on Canberra (02) 6252 7139.

ANALYSIS AND COMMENTS SECTORAL SUMMARY

INTERSECTORAL FINANCIAL FLOWS

During December Quarter 2005

Significant flows during the December quarter 2005 were the net $13.9b and $10.1b borrowed by non-financial corporations from financial corporations and rest of world, respectively. Financial corporations borrowed a net $1.8b from rest of world. General government borrowed a net $1.5b from households.

INTERSECTORAL FINANCIAL CLAIMS

At end of December Quarter 2005

At the end of December 2005, net claims on non-financial corporations stood at $568.2b from financial corporations, $327.7b from rest of world, $122.5b from general government and $163.2b from households. Financial corporations financed claims on other sectors from net claims of $585.4b by households and $218.1b by rest of world.

ANALYSIS AND COMMENTS MARKET SUMMARY

FINANCIAL MARKET ANALYSIS

Selected Financial Instruments

Outstanding at end

Trans- actions during

Other changes during

Outstanding at end

Sep Qtr 2005

Dec Qtr 2005

Dec Qtr 2005

Dec Qtr 2005

Selected Financial Instruments

$b

$b

$b

$b

Currency and deposits

848.0

48.4

3.2

899.6

Short term debt securities

369.0

23.0

0.7

392.7

Long term debt securities

724.6

25.5

7.2

757.3

Derivatives

148.0

-18.0

5.6

135.6

Loans and placements

1 981.1

51.0

-0.9

2 031.1

Listed shares

1 075.8

18.6

27.3

1 121.7

Unlisted shares

956.9

22.2

9.5

988.6

Reserves of life offices and pension funds

823.7

12.8

27.0

863.5

General insurance prepayments and reserves

63.8

-0.2

0.0

63.6

Deposit liabilities increased to $899.6b at the end of December 2005, following transactions of $48.4b during the quarter, compared with net settlements of $1.5b in the previous quarter. Banks accepted $30.4b (up $22.1b on that accepted last quarter), rest of world accepted $9.5b (up $21.8b) and other depository corporations accepted $5.5b (up $3.5b).

Short term security liabilities increased to $392.7b at the end of December 2005. There were issues of $23.0b, comprised of $4.4b in bills of exchange and $18.6b in one name paper issued. Total long term security liabilities increased to $757.3b at the end of December 2005, following issues of $25.5b during the quarter. Banks issued $9.3b, of which $5b was issued offshore and $4.3b was issued domestically. Financial intermediaries n.e.c. (mainly securitisation vehicles) redeemed $4.5b, of which $1.5b was redeemed domestically and $3.0b was redeemed offshore.

The value of derivative contracts on issue at the end of December 2005 decreased by $12.4b to $135.6b. Components of the decrease were net settlements of $18.0b and valuation increases of $5.6b.

Loan liabilities rose to $2,031.1b at the end of December 2005 following transactions of $51.0b during the quarter. Borrowing by households was $26.8b while private non-financial corporations borrowed $15.6b and pension funds borrowed $13.7b.

The listed share market increased by $45.9b to $1121.7b at the end of December 2005, with transactions of $18.6b and valuation increases of $27.3b. Private non-financial corporations had issues of $17.2b and Financial intermediaries n.e.c issued $0.7b. The value of the unlisted share market increased by $31.7b to $988.6b at the end of December 2005. Transactions were $22.2b and valuation increases were $9.5b. Rest of the world had issues of $14.9b and financial intermediaries n.e.c issued of $5.2b.

At the end of December 2005, the reserves of life offices and pension funds were $863.5b following transactions during the quarter of $12.8b and valuation increases of $27.0b. General insurance prepayments and reserves were $63.6b at the end of December 2005.

SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

Summary

Private non-financial corporations raised a net $36.1b (excluding derivatives and accounts payable) during the December quarter 2005. They borrowed $12.0b in loans and made a net issue of $6.8b in debt securities. Share issues rose a net $17.3b during the quarter. These transactions resulted in total borrowings outstanding of $547.5b and total equity on issue of $876.5b.

During the December quarter 2005, total liabilities of national public non-financial corporations decreased by $1.8b following decreases in transactions of $0.1b and valuation decreases of $1.7b. Liabilities of state and local public non-financial corporations did not change, remaining at $142.0b.

Private non-financial corporations debt to equity ratio

From the end of December 2003 to the end of December 2005, the value of equity on issue increased by $219.9b. The value of debt outstanding rose $125.4b during the same period. During the December quarter 2005, private non-financial corporation debt increased by $28.3b, while equities on issue increased by $28.9b. Over the December quarter 2005, the original debt to equity ratio rose from 0.75 to 0.76 and the adjusted ratio fell from 1.37 to 1.35. The adjusted ratio reflects the removal of price change from the original series. The movement in the ratio continues to include some one-off effects of the corporate restructuring occuring in the June quarter (discussed in the June quarter 2005 publication).

During the quarter, transactions of banks’ currency and deposits liabilities were $30.9b. They had issuance in one name paper of $16.9b and bonds $8.9b. These were offset by net settlements of derivatives of $7.4b and loans and placements $7.7b.

Transactions of financial assets of banks were $25.4b during the quarter. Banks loaned a net $29.4b, of which loans to households were $24.1b and private non-financial corporations were $8.5b. These loans were offset by repayments of $4.4b by rest of the world. Transactions in bank holdings were: bonds, $4.4b; bills of exchange, $4.3b; and currency and deposits, $3.1b. These were offset by redemptions of other accounts receivable $9.1b and derivatives $7.2b.

Other depository corporations

Transactions of other depository corporations liabilities increased by $3.8b during the December quarter 2005, driven mainly by transactions in Currency and deposits of $5.7b and Bonds of $2.4b. This was partially offset by Derivatives being in a net liability position of $3.3b and One name paper being in a net liability position of $1.2b. Net transactions in financial assets fell by $2.5b, with the main contributors being a net fall in derivatives of $3.4b, one name paper of $1.4b and holdings of bills of exchange of $1.3b. These decreases were partially offset by a net increase in loans and placements borrowed of $2.9b.

Life insurance corporations

At the end of December quarter 2005, the financial assets of life insurance corporations stood at $221.3b, an increase of $3.2b from the previous quarter. Net transactions were $0.6b and valuation increases were $2.6b. During the quarter there were transaction increases to currency and deposits of $1.1b, one name paper of $0.7b, other accounts receivable of $0.8b and loans and placements of $0.3b. There were decreases to bonds of $0.5b, bills of exchange of $0.2b and equities sales of $1.6b. Pension fund claims against the reserves of life offices increased by $7.4b following net transactions of $4.0b and valuation increases of $3.4b. Households claims against the reserves of life offices decreased by $3.8b following net transactions of -$4.9b and valuation increases of $1.1b.

Pension funds

Net equity in reserves of pension funds was $813.3b at the end of the December quarter 2005, an increase of $43.5b. This follows net transactions of $17.7b and $25.8b valuation increases during the quarter. Assets increased due to transactions in equities of $6.5b, net equities in life office reserves of $4.0b, currency and deposits of $2.9b, long term debt securities of $2.6b, loans and placements of $1.3b, short term debt securities of $1.2b and other accounts receivable of $0.5b.

Other insurance corporations

During the December quarter 2005, net liability transactions of other insurance corporations were -$0.8b, with accounts payable contributing -$1.2b. Net transactions in financial assets of other insurance corporations were $0.4b during the December quarter 2005. Equities was the main driver of the increase, contributing $1.7b, with other accounts receivable offsetting this increase -$1.9b.

Central borrowing authorities

Total liabilities of central borrowing authorities was $110.6b at the end of the December quarter 2005. During the quarter, the authorities had a net increase in bonds etc issued offshore of $1.6b and a net increase in loans and placements of $1.4b. This was offset by a net decrease in derivatives of $0.9b.

Financial intermediaries n.e.c.

At the end of the December quarter 2005, net liabilities of financial intermediaries n.e.c. were $473.4b, with unlisted shares of $157.8b on issue. Net liability transactions of financial intermediaries n.e.c. were $5.6b during the quarter, with loans and placements of $7.2b and bonds etc issued in Australia of -$4.8. During the December quarter 2005, transactions in financial assets were $19.2b, with net purchases of equities $13.0 and new loans and placements of $1.9b.

Net flow of currency and deposits to banks

Transaction in currency and deposit liabilities of banks during the December quarter 2005 were $30.9b. The transactions in currency and deposit assets of households were, $12.8b, private non-financial corporations $12.3b, central bank, $9.7b, rest of the world, $8.4b and pension funds $2.9b. These were offset by a reduction in bank deposits by other insurance corporations $1.1b.

CURRENCY AND DEPOSITS LIABILITIES, BANKS

Financial asset portfolio of life insurance corporations and pension funds at end of quarter

At the end of the December quarter 2005, life insurance corporations held $136.5b in shares and other equity (62% of their financial assets), of which $113.7b was in resident companies and $22.8b was in non-resident companies; $42.4b in bonds (19% of their financial assets), of which $35.9b was in Australian bonds and $6.5b in non-resident bonds; and $19.3b in short term securities (9% of their financial assets).

At the end of the December quarter 2005, pension funds held $414.1b in shares and other equity (53% of their financial assets), of which $291.7b was in resident companies and $122.4b was in non-resident companies. They held $151.4b of net equity in life office reserves (19% of their financial assets); and $93.7b in bonds (12% of their financial assets), of which $41.8b were Australian bonds and $51.9b were non-resident bonds.

Financial claims between households, life insurance companies, pension funds and investment managers at end of quarter

At the end of the December quarter 2005, households had claims against the reserves of life insurance corporations of $50.2b and pension funds of $813.3b. Pension funds had claims against the reserves of life insurance corporations of $151.4b. Life insurance corporations invested $139.2b of their financial assets through investment managers, and pension funds invested $369.3b through investment managers.

Note that the financial claims between households, life insurance companies and pension funds have been revised back to March 2004.

Financial asset portfolio of other insurance corporations at end of quarter

The graph below shows that at the end of the December quarter 2005, other insurance corporations held $33.9b in shares and other equity (32.1% of total financial assets), of which $27.7b was in resident corporations. Other insurance corporations also held $28.8b in bonds (27.3% of total financial assets), of which $27.1b was issued by resident corporations and $1.7b by non-resident corporations.

Central borrowing authorities net issue of debt securities

Within Central borrowing authorities, issues of one name paper remained unchanged during the December quarter 2005, while bonds issued increased by $2.5b.

Financial intermediaries n.e.c. net issue of debt securities

During the December quarter 2005, financial intermediaries n.e.c. made a net redemption of bonds of $7.8b, and issues of short term paper increased by $0.1b.

GENERAL GOVERNMENT

Summary

During the December quarter 2005, consolidated general government transactions resulted in a net change in financial position of $4.2b (see table 33, December quarter 2005).

The net change in financial position for national general government was $2.0b. The liability transactions of national general government during the December quarter decreased by $1.0b. Main contributors were a reduction in other accounts payable of $3.6b, a $1.3b increase in unfunded superannuation claims, and a $1.9b increase in bonds issued in Australia.

During the December quarter 2005, asset transactions for national general government were $1.0b. Main contributors were a $2.2b increase in accounts receivable, a decrease in currency and deposits of $0.5b, and net settlements of derivatives in an asset position of $0.4b. At the end of December 2005, national general government had total liabilities of $180.0b and total financial assets of $86.8b.

Transactions in state and local general government financial assets were $1.1b in the December quarter 2005, while transactions in total liabilities were -$1.0b, resulting in a change in financial position of $2.1b. At the end of the quarter, state and local general government had total liabilities of $97.2b and total financial assets of $136.0b.

Change in financial position

National government issue of debt securities

The accompanying graph illustrates the national general government’s bond issuance. The net issue of treasury bonds was $1.9b during the quarter.

HOUSEHOLDS

Summary

Households change in financial position was -$4.7b during the quarter. Borrowing, mainly through bank loans, was $31.8b. This was largely offset by an increase of $27.1b in assets, mainly in the form of net equity in reserves of pension funds, and currency and deposits.

Households purchased a net $1.7b in equities during the December quarter 2005, the major contributors being the purchase of $2.6b of financial intermediaries n.e.c shares, $0.9b of national public non-financial corporation shares and $0.6b of private non-financial corporation shares. These were offset by $1.2b sale of both banks and life insurance shares and $0.1b sale of other insurance corporation shares.

At the close of the quarter, households' stock of financial assets was $1,875.0b. This was up $70.8b from the previous quarter number, following net transactions of $27.1b and valuation increases of $43.7b. Major asset holdings were net equity in reserves of life insurance corporations and pension funds of $863.5b, currency and deposits of $397.2b, equities of $362.3b, and unfunded superannuation claims of $150.3b.

Household net borrowing and debt to liquid asset ratio

Of the net $26.8b borrowed by households during the December quarter 2005, bank loans accounted for $24.1b. Of the bank loans, $14.4b was borrowed for owner occupied housing and $5.3b for investment housing. There was an increase of $2.1b in borrowing from financial intermediaries nec.

The graph below illustrates that the debt to liquid assets ratio at the end of December 2005 was at 120.0%, a decrease of 1.2 percentage points from the revised September quarter ratio. The ratio was influenced by an overall increase from the previous quarter of 2.8% in total outstanding household borrowings and an increase in total liquid assets of 3.8% (of which the major contributors were deposits and equities).

Insurance and pension claims

During the December quarter 2005, households' net equity in reserves of pension funds increased $43.5b, made up of $17.7b transactions and $25.8b valuation increases, bringing household net equity in pension funds to $813.3b. Net equity in reserves of life insurance corporations decreased $3.7b, made up of -$4.9b transactions and $1.2b valuation changes, bringing the household net equity in life insurance to $50.2b. Net transaction in households' unfunded superannuation claims were $1.5b during the quarter. Prepayments of premiums and claims against reserves in general insurance corporations decreased $0.1b.

REST OF THE WORLD

Summary

Non-residents invested a net $13.8b in Australian financial assets during the December quarter 2005.

The value of Australian financial assets held by non-residents at the end of the quarter was up $50.3b from the September quarter to $1,248.9b in December quarter 2005, including $17.1b valuation increases. Transactions in holdings of one name paper increased by $13.5b, holdings of equity increased $12.7b, purchases of bonds increased $8.9b (of which $7.0b was issued by banks) and placements of currency and deposits increased $8.4b. These were offset partially by net settlements of derivatives in an asset position of $5.3b, a reduction in loans of $4.9b, and a reduction in holding of bills of exchange of $1.9b.

Australian residents increased their holdings of foreign financial assets by a net $19.4b during the December quarter 2005. The total value of foreign assets held by Australian residents increased to $688.7b at the end of the quarter, after taking into account a valuation increase of $12.2b. Residents increased purchases of equity of $14.9b, placements of currency and deposits of $9.5b with non-residents and purchases of debt securities of $9.3b from non-residents. These were partially offset by decreases in loans and placements of $9.0b with non-residents, derivatives in a net asset position of $4.5b and accounts payable of $0.9b.

Net purchases of equities

During the December quarter 2005, non-residents acquired a net $12.7b in equities, an increase of $7.3b compared with the September quarter 2005. The restructuring of a large corporate group in June quarter 2005 was discussed in the June quarter 2005 publication.

Net purchases of bonds

Non-residents purchased $8.9b of Australian bonds during the December quarter 2005, a decrease of $2.9b compared with September quarter 2005.